TaxTMI 
TaxTMI 
2026 (7) TMI 287
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....CIT(A) has erred in confirming the actions of the Learned Assessing Officer (Ld. AO') and sustain the following additions or disallowance made in the impugned assessment order: a. Disallowance of Prior Period Expenses of Rs. 3,11,55,478/- b. Disallowance of Employee Stock Option Plan expense aggregating to Rs. 3,19,61,289/- c. Disallowance of carry forward and set off of accumulated business loss and unabsorbed depreciation aggregating to Rs. 2,40,15,01,124/- 2. Ground No. 2 - Disallowance of Prior Period Expenses of Rs. 3,11,55,478/- 2.1. Based on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of Ld. AO in disallowing prior period expenses of Rs. 3,11,55,478/-. 2.2. On the facts and in the circumstance of the case and in law, the Ld. CIT(A) erred in not considering the facts and explanation presented by the appellant company in its written submission that the expense incurred by the appellant company was deductible expense under section 36(1) (iii) and 37(1) of the Act. 2.3. Without prejudice to the above, prior period expenses of Rs.3,11,55,478/- should be allowed....
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....hin the definition of 'resulting company' as per section 2(41A) of the Act. 4.3. Further, the Ld. the Ld. CIT(A)/Ld. AO has erred in not appreciating that condition under section 2(19AA) (iv) of the Act has been complied with as the resulting company TCIL has issued shares to the shareholders of the demerged company. 4.4. The Ld. CIT(A) / Ld. AO also erred in not appreciating that issue of shares by resulting company TCIL results in fulfilment of condition prescribed under clause (v) of section 2(19AA) of the Act which is to be read in conjunction with clause (iv) to the said section. 3. The assessee company formerly known as Thomas Cook Insurance Services India Ltd('TCISL') is engaged in selling vacation home and leisure hospitality services etc. It filed loss return. The AO made certain additions and upheld by the appellate authority which are being contested in the instant appeal. 4. Ground no.1- This ground is general in nature and doesn't need any adjudication. 5. In ground no.2, the assessee has disputed the disallowance of Prior period expenses of Rs.3,11,55,478/-. The AO made the disallowance on the reasoning that they did not pertain to t....
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....as incurred wholly and exclusively for the purpose of the business. It also quoted decision in case of Biocon Limited Vs DCIT 35(2013) 35 taxman passed by ITAT, Bangalore Bench. The AO on the other hand, relied on the decision of the Hon'ble Supreme Court in the case of Punjab State Industrial Development Corp Ltd (1997) 225 ITR 792 (SC) and Brooke Bond India ltd (1997) 225 ITR 798 (SC) and inter alia observed that the nature of ESOP was that of issue of shares to employees at a predetermined rate on a discounted rate and there is no specific provision in the Act which provides deduction on the discount given to the employees in ESOP. The ld.CIT(A) held that the assessee had not made out a case for allowing deduction of discount on ESOP as expenditure u/s 37 of the Act. Accordingly, this ground of appeal was dismissed and the addition made by the AO was confirmed. 9. Before us, the ld.AR has claimed that the issue under consideration is no longer res integra and in a plethora of judicial decsions, such claims are consistently being allowed in favour of the assesses. The ld.DR on the other hand relied on the lower authorities. 10. We have carefully considered the relevant fact....
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.... against of the assessee. Accordingly, we set aside the appellate order and direct the AO to allow the deduction. The ground of the assessee is, therefore, allowed. 11. Ground No. 4 pertains to the disallowance of carry forward and set off of accumulated business loss and unabsorbed depreciation aggregating to Rs.2,40,15,01,124/-by the AO and affirmed by the ld.CIT(A).It is claimed that both the authorities erred in disallowing the set off of brought forward unabsorbed depreciation of Rs.5,19,10,313/- against income of the impugned year. Further, the AO erred in disallowing carry forward of business loss of Rs.121,66,74,982/- and unabsorbed depreciation of Rs.113,29,15,829/- under section 72A (4) of the Act. 11.1 Facts emanating from the records reveal that in this case, three entities which entered into a court-approved scheme of arrangement, sanctioned by the Hon'ble Bombay High Court involving i.e. Sterling Holiday Resorts India Ltd. ('SHRIL' / 'Demerged or Transferor Company') a listed company, Thomas Cook (India) Ltd. ('TCIL'/'Transferee Company' / 'Resulting Company'),a listed Company; and the assessee (formerly known as '....
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.... hence, the addition made was confirmed. 13. Before us, the ld.AR has made detailed argument which was followed with a brief written submission. It is submitted the lower authorities erred in not understanding the facts of the case and appreciating that assessee company to which the demerged undertaking had been transferred as well as its parent i.e.TCIL, a wholly owned subsidiary of which had received the demerged undertaking, falls within the definition of 'Resulting company' as per section 2(41A) of the Act. The conditions under section 2(19AA) (iv) of the Act have been complied with as the resulting company TCIL had issued shares to the shareholders of the demerged company. The issue of shares by resulting company TCIL results in fulfilment of condition prescribed under clause (v) of section 2(19AA) of the Act which is to be read in conjunction with clause (iv) to the said section. 13.1 A flow chart of the transactions as entered into amongst the three entities has been reproduced as below: 13.2 It was submitted further that the aforesaid restructuring was undertaken to consolidate complementary businesses, ensure focused management, and unlock long-term value.....
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....sub-section (iv) to section 2(19AA) states that 'resulting company' should issue its shares to the shareholders of the demerged company on a proportionate basis in consideration of the demerged undertaking. As per the section 2(41A) expressly defines "resulting company" to include one or more companies, including a wholly owned subsidiary, to which the undertaking is transferred. The issue for consideration now is the meaning of the phrase "one or more companies (including wholly owned subsidiary thereof)". The inclusion of the phrase "including wholly owned subsidiary thereof" cannot be for the purpose of including the category of wholly owned subsidiaries as a resultant company. The starting phase "one or more companies" would include all companies including a company which is a wholly owned subsidiary of another company or for that matter a company which is a holding company of another subsidiary. It is not necessary to state separately that a wholly owned subsidiary can be a Resultant company. Both the companies can be interchangeably considered as a 'Resultant Company'. Further, the Act considers a combination of holding company together with subsidiary, interc....
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....shares of TCIL is in compliance with the provisions of 2(19AA) r.w.s. 2(41A) of the Act i, e. in case of more than one resulting company, the conditions to section 2(19AA) is complied with even if either of the resulting company discharges consideration. 14. The ld.DR on the other hand relied on the order of the lower authorities contending that the claim of the assessee is not in accordance with the express provisions of law. 15. We have carefully considered the facts of the case, rival submission. In the case before us, the only issue is whether the assessee company has complied with the requirements of section 2(19AA) and 2(41A) or not while demerged company merged into it, being a Resultant Company. The Department has gone by the strict meaning of the provisions laid therein which inter alia provider that the Resultant company is required to issue shares to the shareholders of the merged company while the assesses contention is that even when the holding company i.e. TCIL issued such shares, there was sufficient compliance making the assessee company eligible for the set of brought forward business losses and unabsorbed depreciation. 15.1 Before proceeding further in t....
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....ned u/s 2(19AA) of the Act, wherein one of the conditions for tax neutrality of demerger stipulates that the resulting company must issue its shares to the shareholders of the demerged company, in consideration of the demerger scheme. Accordingly, as per Section 2(41A) of the Act, unless the context otherwise requires, the term "resulting company" means one or more companies (including a wholly owned subsidiary thereof) to which the undertaking of the demerged company is transferred in a demerger and, the resulting company in consideration of such transfer of undertaking, issues shares to the shareholders of the demerged company and includes any authority or body or local authority or public sector company or a company established, constituted or formed as a result of demerger. 15.6 Therefore, the Act inter alia provides that a demerger must satisfy all the conditions: i. All the properties and liabilities of the undertaking being transferred by the demerged company, immediately before the demerger, become the property or liability of the resulting company by virtue of the demerger. ii. The properties and liabilities must be transferred at their book value imme....
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....reciation shall apply accordingly:[Provided that the accumulated loss and the unabsorbed depreciation of the amalgamating company, in case of an amalgamation referred to in clause (d), which is deemed to be the loss or, as the case may be, the allowance for unabsorbed depreciation of the amalgamated company, shall not be more than the accumulated loss and unabsorbed depreciation of the public sector company as on the date on which the public sector company ceases to be a public sector company as a result of strategic disinvestment. 15.8 Therefore, section 72A(4) of the Act provides that in case of a demerger, the accumulated losses and unabsorbed depreciation directly relatable to the undertaking that is being transferred under the demerger, shall be allowed to be carried forward in the hands of the resulting company. If the loss or unabsorbed depreciation cannot be directly attributed to the said undertaking, the same shall be apportioned between the demerged and resulting company in the same ratio in which the assets of the undertaking have been retained by the demerging company and transferred to the resulting company and shall be allowed to be carried forward and set off in ....
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.... any intendment; that regard must be had to the clear meaning of the words and that the matter should be governed wholly by the language of the notification. Equity has no place in interpretation of a tax statute. Strictly one has to look to the language used and there is no room for searching intendment nor drawing any presumption. Furthermore, nothing has to be read into nor should anything be implied other than essential inferences while considering a taxation statute. 15.11 In the ruling while deciding civil appeals filed by the Director of Income Tax (IT)-I, Mumbai, concerning the interpretation of Section 44C of the Act, the respondents being M/s American Express Bank Ltd and M/s Oman International Bank dated 06.02.2026, the hon'ble Supreme Court has reiterated that taxation statutes must be interpreted strictly and that where the statutory language is plain and unambiguous, courts are bound to give effect to its plain meaning. A Bench of Justices J. B. Pardiwala and K. V. Vishwanathan observed that it is impermissible for courts to add or read words into a statute on the assumption that such additions may better advance legislative intent, particularly when the language u....
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....that failure to comply with the said requirement leads to severe consequences, such requirement is mandatory; (d) It is the cardinal rule of the interpretation that where a statute provides that a particular thing should be done, it should be done in the manner prescribed and not in any other way; and (e) Where a statute is penal in character, it must be strictly construed and followed." 16. Considering the above discussion and in the light of the cited decisions, we are of the considered opinion that there being no ambiguity in the aforesaid provisions and in the absence of any other interpretation by any court of law, there is absolutely no basis for any other interpretation. The fact remains that in this case, the assessee did not issue shares to the demerged company, thus failing to satisfy the conditions laid therein. There is no dispute that there is substantial difference between a Holding company and a subsidiary thereof having their own independent legal existence vested with relevant rules and regulations. The Holding company cannot issue shares on behalf of the subsidiary and its obligations are restricted to its own legal liabilities and obligation ....